As we head into the end of the year, the market is navigating political headwinds, rising interest rates, and a shifting investor landscape. Here’s what’s shaping the Central PA multifamily market and how owners and investors can position themselves heading into 2023.
Political and Market Headwinds
Rent control was on the ballot in several markets this fall, including a closely watched measure in Orange County, FL that passed with 60% support and is now being challenged in court. Meanwhile, Redfin reports investor single-family sales fell 30% in Q3, the steepest drop since the Great Recession, as the Fed holds firm on rate hikes until unemployment shows a meaningful decline. With larger, leverage-dependent buyers sitting on the sidelines, all-cash and low-leverage investors are stepping in to capitalize on opportunities others can’t move on quickly.
Financing Strategies in a Higher-Rate Market
National Multifamily Housing Council data shows October sales volume back at April 2020 levels, with debt availability worse than it was then. Owners and investors navigating this environment have a few options worth exploring:
- Seller financing, including second loans when a seller can’t offer a first
- – Loan assumptions, weighing floating terms against market rate even near the end of a fixed term
- – Interest-only or floating-rate debt on new acquisitions, with a plan to refinance later
What’s Driving the Central PA Market
Central PA’s fundamentals set it apart heading into a slower stretch nationally. Nearly 19% of the region’s population is 65 or older, drawn by favorable retirement income tax treatment and quality of life, supporting demand for low-maintenance rental housing. At the same time, rising rates, construction costs, and land prices have pulled back new development, and with roughly 1,900 units currently in the pipeline, the existing housing shortage isn’t going away soon. Out-of-state investors who chased yield in tertiary markets like Central PA over the past two years are expected to pull back, giving local investors reduced competition. And with one of the lowest unemployment rates in the state at 3.4%, backed by a diverse base of government, healthcare, warehousing, and professional services jobs, the region is positioned to hold up well through a slowdown.
Curious how these interest rate pressures compare to the broader cap rate trends we’ve tracked this year? Contact us for a strategy session as we head into 2023.
